Court precedent: Who bears the tax for individual subcontracted works?

The civil judgment of the second instance of the construction contract dispute between a company and Liu

Subject matter: Construction contract dispute

Case No.: (2024) Ning 02 Min Zhong No. 186

Published: 2024-04-30

Shizuishan Intermediate People's Court of Ningxia Hui Autonomous Region

Civil judgments

(2024) Ning 02 Min Zhong No. 186

Appellant (plaintiff in the original trial): A company, business place: Room 1017, Zhenjun Hao Ting, Mancheng South Street, Jinfeng District, Yinchuan City, Ningxia Hui Autonomous Region.

Person in charge: Zhang Moumou.

Entrusted litigation agent: Tang Moumou, lawyer of Beijing Haotian (Yinchuan) Law Firm.

Entrusted litigation agent: Li Moumou, lawyer of Grandall Law Firm (Yinchuan).

Appellant (defendant in the original trial): Liu Moumou, living in Yinchuan City, Ningxia Hui Autonomous Region.

Entrusted litigation agent: Deng Moumou, lawyer of Shanghai Zhongxia (Yinchuan) Law Firm.

In the case of a construction contract dispute between the appellant company and the appellant Liu, the appellant appealed to this court against the civil judgment of the People's Court of Pingluo County, Ningxia Hui Autonomous Region (2023) Ning 0221 Min Chu No. 1661. After the case was filed on January 30, 2024, this court formed a collegial panel in accordance with the law and conducted a public hearing. The appellant company entrusted agents ad litem Tang and Li, and the appellant Liu appointed agent ad litem Deng to participate in the litigation. The case is now closed.

A company's appeal request: (l) to revoke the first-instance judgment and remand for retrial or change the judgment in accordance with law to support the company's litigation claims; Facts and Reasons: 1. Where the first-instance judgment is wrong in determining the facts and applying the law incorrectly, the second-instance court shall correct it. The court of first instance held that a group company and a company were two taxpayers, and that the payment of taxes and fees by the two was an independent accounting, and that the taxpayers should be directed against the counterparty with direct obligations. In this case, the Internal Contracting Agreement stipulates that the company shall bear the contractual responsibilities and obligations of the project involved in the case, which of course includes the bearing of all taxes and fees, and it is also clear in the subsequent supplementary agreement that the taxes (fees) involved in the local tax authorities and relevant departments shall be borne by Liu. At the same time, according to the provisions of the Company Law and the Civil Procedure Law, although a company can be the subject of litigation, it still does not have the qualification of an independent legal entity, and from the perspective of civil liability, the consequences of a company's civil behavior shall be borne by a group company. That is to say, the legal consequences of the signing of the Supplementary Agreement between a company and Liu Moumou shall be borne by a group company, and from this point of view, the taxes (fees) of the project involved in the case should also be borne by Liu. It should be noted that in the judgment of another case, a group company, as the subject of the litigation, recognized the identity of the project manager involved in the case, and at the same time, in this case, it also recognized the company to claim rights on behalf of a group company on the issue of tax (fee) bearing. 2. As a professional opinion issued by a professional institution, the appraisal report has fully explained the tax-related matters and shall be used as the basis for the verdict of the case. The disputed tax amount in this case is to be issued by a third-party professional institution entrusted by the court, and the evidence materials on which the appraisal procedures in this case are based have been fully cross-examined by both parties to the dispute, and shall be used as the basis for the verdict of this case if there are no illegal circumstances in the appraisal procedures and appraisal methods. In addition, according to Article 22 of the Provisional Regulations on Value-Added Tax (Decree No. 538 of the State Council [2008]) on the place of VAT payment, "fixed business households shall declare and pay taxes to the competent tax authorities where their institutions are located. If the head office and branch offices are not in the same county (city), they shall declare and pay taxes to the competent taxation authorities of their respective places." According to the above provisions, it is the legal obligation of a certain company, as a branch of a group company, which is not in the same city as the place of business of a certain group company, to declare and pay taxes to the respective competent tax authorities in accordance with the requirements of the tax authorities. Although a certain company made a tax declaration in accordance with the requirements of territorial management due to the partial tax amount of the project involved in the case, this part of the business income still belongs to the total business income of a group company, and the appraisal agency conducted an appraisal and analysis based on the actual situation of each separately filing tax returns, which is not only in line with the reality of this case, but also fully in line with the law. Therefore, the taxes (fees) disputed in this case should be borne by Mr. Liu, and the appraisal opinion made by a third-party professional institution should be used as the basis for the verdict of this case, and the second request should clarify the facts and support the company's litigation claims in accordance with the law.

Liu Moumou argued that the court of first instance was correct in its determination that a certain group company and a certain company were two independent taxpayers and that the taxes and fees between the two were independently calculated, so the judgment rejecting a certain company's claim on part of the taxes and fees against a certain group company was a clear determination of facts and the judgment was correct, and the second-instance trial should reject the appeal request of a certain company for that part.

Liu's appeal request: (l) to revoke the first-instance judgment and remand for retrial or to change the judgment to reject the company's litigation claims; Facts and reasons: 1. The project involved in the case was contracted by a group company not involved in the case from a company in Pingluo, and the "Project Contracting Contract" signed between a group company and a company in Pingluo clearly stipulated that the project involved in the case should not be subcontracted again, but the group company actually subcontracted the project involved in the case layer by layer, and finally Liu XX subcontracted from a company to implement the construction of the project involved in the case. According to the provisions of the tax law, although the Supplementary Agreement signed between Liu and the company stipulates that the relevant taxes and fees involved in the project shall be withheld from the project money transferred to Liu, because the agreement is invalid, the relevant provisions on the subject of tax obligations and withholding in the agreement are also invalid. However, Liu Moumou did not have any agreement or negotiation with a group company that was not involved in the case. Therefore, the taxes and fees involved in the project involved in the case should be borne by a group company not involved in the case in accordance with the law, rather than by Liu or a certain company. In summary, a company's request for Liu Moumou to pay it the taxes and fees involved in the project involved in the case has no factual and legal basis and should not be supported. 2. According to Article 19 of the Measures of the People's Republic of China for the Administration of Invoices, "Units and individuals that sell goods, provide services and engage in other business activities shall issue invoices to the payer if they collect money for external business operations; The first paragraph of Article 21 stipulates: "The taxation authorities are the competent authorities for invoices, and are responsible for the management and supervision of the printing, purchasing, issuance, acquisition, custody and cancellation of invoices." Units and individuals shall issue, use, and obtain invoices in accordance with regulations when purchasing and selling goods, providing or receiving business services, and engaging in other business activities. It can be seen from this that the obligation of the payee in market business activities is to issue and deliver invoices to the payer, rather than to pay taxes directly to the payer, and the main system of tax collection is the tax administrative organ, and no other administrative organ, legal person or natural person other than that is qualified as a tax subject. Specific to this case, Liu Moumou is the payee, a company is the payer, and Liu Moumou's obligation is only to issue and deliver invoices to a certain company, and at the same time, a certain company has paid 22,230,9496 yuan to Liu Moumou for the project, and Liu Moumou has issued and delivered an invoice with a face value of 24,973,80586 yuan to a certain company, so it can be seen that a certain company and Liu Moumou also followed the transaction rules of payment, issuance and delivery of invoices in the actual performance process. As a result, the remaining project money of 3,804,639,840 yuan was obtained by Liu Moumou after applying to the people's court for compulsory enforcement in 2023, so Liu Moumou can also issue and deliver the invoices involved in this part of the project money to a company. In addition, as a legal entity, a company is not a statutory tax collection entity, so it does not have the qualification to collect taxes from other legal persons or natural persons, that is, it has no right to require other legal persons or natural persons to pay and pay taxes to it. However, in this case, the company's claim was to require Liu to pay taxes to it, so the company's claim was contrary to the facts originally followed between the parties and did not comply with the law, so the company's claim should be dismissed. 3. According to the provisions of the tax law and common sense, if the taxpayer has borne and actually paid the taxes involved, the amount and type of taxes should be specific and clear. However, in this case, combined with the company's claim for a judgment to pay the provisional 614788 of the tax paid on behalf of the company (the final amount determined by the third-party audit institution shall prevail) and the facts of the application for judicial appraisal in this case, and the fact that the company did not have the corresponding specific tax payment voucher for withholding, paying or paying the tax involved in the project, it could not be proved that the company had actually borne and paid the tax involved in the project and the specific amount of tax paid. Therefore, under the circumstance that a company does not actually declare, bear or pay taxes and fees in accordance with the law, and there is no tax collection authority to determine the specific amount of taxes, a company's claim for tax payment is not clear and specific, and should be dismissed. 4. The taxes and fees contained in the tax appraisal report are determined by reviewing and evaluating the information submitted by a company and Liu, but this case cannot ensure that Liu and a company have provided complete and complete information on the project involved in the case, so the tax amount stated in the tax appraisal report is not objective, true and specific. Although a company provided a tax payment certificate, the company did not provide any tax payment certificate or tax payment voucher to prove the specific amount of tax paid by the project involved in the case, so the tax involved in the project could not be specifically determined, so the company's claim for tax payment could not be established and should be dismissed.

A company argued that Liu's appeal could not be sustained. 1. From the perspective of trading habits and industry practices, in the subcontracting or illegal subcontracting of the project, the subcontractor only charges a very small proportion of the management fee, which cannot cover the tax payable by the project, and the ultimate obligor of the general tax is the actual constructor, and in practice, it is also borne by the actual constructor, and the above-mentioned tax bearing mechanism is in line with the basic business logic and general life experience rules. In this case, a company only charged 2% of the management fee, which was far lower than the tax amount involved in the project, so the contract between the two parties clearly stipulated that the tax should be borne by Liu, even if there was a situation where the contract was invalid due to subcontracting, according to the provisions of the judicial interpretation of construction engineering, under the premise of passing the acceptance of the project, the settlement of the project payment should refer to the contract between the two parties, and the deduction of taxes and fees itself is part of the settlement of the project price, and Liu Moumou should bear the taxes and fees of the project. 2. The dispute in this case is which party ultimately bears the tax paid by a company as a statutory taxpayer, and although Liu, as the actual constructor, is not the statutory taxpayer of the project payment, it does not affect the actual bearer of the tax agreed by the two parties. As for the issuance of invoices, in the process of organizing the construction, Liu Moumou had the upstream material supplier directly issue invoices to a company, which is the legal obligation of the upstream material supplier and does not affect the determination of tax liability in this case. 3. In this case, although a company cannot issue a separate tax payment voucher for the project involved in the case, and cannot distinguish it from the tax payable of other construction projects of the company, the tax authorities have issued a tax payment certificate of the company, which is sufficient to prove that the company has paid the tax in full in accordance with the tax collection and management regulations, and the professional opinion issued by the appraisal agency should be used as the basis for the adjudication of this case. In the legal relationship of subcontracting, the subcontractor only transferred the project money paid by the construction unit after deducting the management fee, and in this case, the project money paid by a company in Pingluo was transferred to Liu after deducting 2% of the management fee. A company is responsible for the management of the project as a branch of a group company, and the consequences of the legal act of subcontracting should be determined to be a group company, and the corresponding taxes and fees involved in the project should be borne by Liu according to the contract.

A company's first-instance litigation claims: 1. Order Liu to pay a provisional 614788 yuan of the tax paid on behalf of the company (the final amount determined by the third-party audit agency) and interest of 165,423.5 yuan (calculated from January 1, 2017 to April 4, 2023, calculated according to the interest rate standard of the People's Bank of China's 5-year LPR of 4.3%, and request a judgment to the date of actual repayment), with a total of 780,211.5 yuan; A company changed its claim in court, and the tax amount was changed from 614788 yuan to 754,325.78 yuan, and the interest of 165,423.5 yuan was changed to 202979 yuan according to the new base calculation, with a total of 957,304.78 yuan.

The court of first instance ascertained that on July 4, 2016, a group company won the bid for the third phase of the European project (bid section 5), and on July 12, 2016, a group company signed the construction contract with a company in Pingluo (section K of the fifth bid section of the second phase of a project). On August 17, 2016, a group company signed a project subcontract with a company, stipulating that a group company would subcontract the pipe network project in section K of the fifth bid section of the second phase of a project to a company, and the contract stipulated that the project subcontracting price was 27.1068 million yuan, and the adjustment method and calculation method of the project subcontracting price was that the company carried out visa and settlement for the owner, and the taxes were borne by the company. On August 25, 2016, a company (Party A) and Yinchuan Branch of a group company (Party B, Liu Moumou is the legal representative of the company) signed the "Project Construction Internal Contracting Agreement", stipulating that the fifth bid section (Section K) of the second phase of the Ningxia ×× County Cogeneration Central Heating Project of a group company was subcontracted to Yinchuan Branch of a group company, and the contract price was 27,519,592,910 yuan (tax included). The costs incurred in undertaking the project, the handling fees for the construction and the various fees charged by the relevant departments shall be borne by Party B. All payments such as engineering materials, labor costs, and machinery costs shall be borne by Party B. Party A guarantees that the project appropriation is earmarked. Party A charges a management fee according to the total price of the final account of the project (3%). Later, a company (Party A) signed a "Supplementary Agreement" with Yinchuan Branch of a group company (Party B) and Liu (Party C), the content of which was changed to a group company on March 31, 2017 due to the winning bidder, Liaoning Hecheng Construction Group Co., Ltd. (see the attachment for the registration certificate of the change of the Industrial and Commercial Bureau). Due to the unified management, the original Party B is required to cancel the relevant matters of Yinchuan Branch, and the original contract subject is changed, and in order to realize the transfer of rights and obligations, this statement is hereby signed to ensure the smooth performance of the contract and protect the interests of all parties. On August 25, 2016, Party A and Party B signed a contract for the third bid section (G section), the fourth bid section (H section) and the fifth bid section (K section) of the second phase of a project, with a contract price of 55,550,244,170 yuan (tax included). The winning bidder will charge a management fee according to the final settlement price of the project (2%). Business tax, urban construction tax, education surcharge, local education surcharge, income tax, river maintenance fee, price adjustment fund, labor insurance co-ordination and other related taxes and fees shall be withheld from the project funds allocated to Party A according to the tax (fee) rate stipulated by the local taxation bureau and relevant departments. After the completion and settlement of the project, the two parties did not reach an agreement on the payment of taxes and fees, and a company sued the court. At the same time, it was ascertained that all the taxes involved in the project had been paid, and the tax authorities had issued a tax payment certificate to the company. After auditing, a company should pay a total of 868,032.64 yuan of value-added tax, enterprise income tax and other taxes and fees involved in the case, of which Liu paid 565,230.04 yuan, and a company paid 302,802.6 yuan.

The court of first instance held that the parties should fully perform their obligations in accordance with the agreement. In this case, the Supplementary Agreement signed between a company and a group company, Yinchuan Branch (Party B) and Liu (Party C) Although it is an invalid agreement, Liu Moumou has completed the construction of the project involved in the case and delivered it in accordance with the agreement, and after litigation, a company has also paid the corresponding project money to Liu Moumou as agreed, and Liu Moumou should perform the tax payment obligation of the project involved in the case in accordance with the agreement, after tax audit, the tax involved in the project involved in the case totaled 868,032.64 yuan, Liu Moumou paid 565,230.04 yuan, and the other 302,802.6 yuan of tax was advanced by a company, which has been paid to the tax department, and this part of the tax should be borne by Liu. Therefore, with regard to a company's litigation request for Liu to pay a tax of 754,325.78 yuan, Liu Moumou was supported to pay a company a tax of 302,802.6 yuan. With regard to the litigation claim of a certain company requiring Liu XX to bear the tax of a certain group company, because a certain group company and a certain company are two taxpayers, and the tax payable by the two companies is independently calculated, the taxpayer should be directed against its direct obligation counterparty, and this part of the tax should not be borne by Liu XX, so this part of the litigation claim of a certain company is not supported. For a company's claim for Liu to pay interest, according to the agreement between the two parties, a company should withhold the corresponding taxes and fees in the project payment, but a company did not put forward an opinion on the withholding of taxes and fees in the lawsuit between the two parties on the project money, nor did it determine the amount of taxes and fees paid in a timely manner, and the responsibility for not paying all taxes and fees in a timely manner was not in Liu, so the litigation claim was not supported. To sum up, in accordance with the provisions of Article 1, Paragraph 2 of the Several Provisions of the Supreme People's Court on the Temporal Effect of the Application of the Civil Code of the People's Republic of China, Article 60 of the Contract Law of the People's Republic of China, and Article 15 of the Law of the People's Republic of China on the Administration of Tax Collection, it is decided that: 1. Liu XX shall pay a total of 302,802.6 yuan of taxes paid by a company within 15 days after the judgment takes effect; The case acceptance fee is 13,373 yuan, of which 9,143 yuan is borne by a company and 4,230 yuan is borne by Liu.

During the second-instance trial, a certain company and Liu did not submit evidence to this court.

The facts ascertained by this court are consistent with those ascertained by the court of first instance, and this court confirms the facts ascertained by the court of first instance.

The court held that both parties to the contract should fully perform their obligations in accordance with the agreement. In this case, Liu Moumou had completed the construction and delivery of the project involved in the case in accordance with the agreement, and after litigation, the company had also paid the corresponding project money to Liu Moumou in accordance with the agreement, and Liu Moumou should perform the obligation to pay taxes and fees for the project involved in the case in accordance with the agreement. After the tax audit of the first instance, the total tax involved in the project involved in the case was 868,032.64 yuan, the tax that Liu Moumou had paid was 565,230.04 yuan, and the other 302,802.6 yuan of tax was advanced by a company and had been paid to the tax department, and this part of the tax should be returned to a company by Liu Moumou. With regard to the company's appeal alleging that the group company's grounds for appeal that the taxes generated by the project involved in the case should be borne by Liu XX, because there was no contractual relationship between Liu XX and the group company, and the company failed to submit evidence that the group company had paid the tax in advance due to the project involved in the case, the company claimed that the taxes generated by the group company due to the project involved in the case should not be borne by Liu, and the first-instance handling was in line with the actual situation of the case and the provisions of the law.

To sum up, the appellants' appeal requests of a certain company and Liu XX cannot be sustained, and the facts found by the original trial court are clear and the law is correctly applied, and should be upheld. In accordance with Article 177, Paragraph 1, Item 1 of the Civil Procedure Law of the People's Republic of China, the judgment is as follows:

The appeal was dismissed and the original judgment was affirmed.

The appellant's company paid a fee of 10,345 yuan for the acceptance of the second-instance case, which was borne by the appellant's company, and the appellant Liu's advance payment of 5,842 yuan for the second-instance case, was borne by the appellant Liu.

This judgment is final.

Presiding Judge Li Xuejun

Adjudicator: Ding Wanrong

Adjudicator: Zhang Jianxing

April 25, 2024

Judge's assistant Guo Rui

Clerk: Dong Ningya

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